It’s no secret that Georgia has become a big player in the film industry. Far fewer people realize it’s also a major player in the far more lucrative fintech space, which encompasses payments processors, online lenders, cryptocurrencies and other aspects of financial technology.
It’s a fast-growing, expansive and quickly-changing industry—but still relatively obscure, even to Atlantans who’ve grown used to buying lunch at a food truck with a swipe of their phone.
A plethora of local law firms, businesses and government entities are promoting the city as a fintech hot spot, including King & Spalding, which held its first-ever FinTech Summit in Atlanta on Monday afternoon.
“It’s a great, growing market,” said the King & Spalding event’s organizer, J.C. Boggs, a partner who lobbies for financial services and technology companies in Washington. The event—one of a spate of recent local fintech seminars—attracted about 200 people, he said—about 150 in person and another 50 via webinar.
Georgia Attorney General Chris Carr kicked off the King & Spalding event with an overview of the state’s fintech industry. At $72 billion in annual revenue, it’s third in size only to New York and California.
There are about 100 fintech companies in Georgia, Carr said, concentrated in Atlanta’s “Transaction Alley,” the swath north of I-285 between I-75 and I-85. The businesses process 118 billion electronic payments annually, representing $2 trillion in purchases.
It’s an “organically grown industry in Georgia,” Carr added.
Georgia’s prominence in the fintech industry has evolved from its status as the epicenter for credit and debit card payments processing, accounting for 70 percent of all electronic payments transactions in North America.
When banks started issuing credit and debit cards, they did not want to process the payments, so payments processing companies sprang up to do their back-office work. Atlanta, where six of the 10 largest payments companies are headquartered, was a regional banking hub where the work could be done relatively cheaply. What started out as low-level payments processing is evolving into fintech.
Carr emphasized that Georgia is friendly to the fintech industry. The state wants to balance its consumer protection and enforcement obligations, he said, “without unnecessary regulatory burdens that stifle innovation.”
Rep. David Scott, D-Georgia, however, channeled Shakespeare to warn the audience of looming federal regulations, paraphrasing the warning to Julius Caesar to “Beware the Ides of March.” Scott is a co-founder of the three-year old Congressional FinTech and Payments Caucus.
“Beware of the ides of the federal government. Federal regulation is coming—and they’ve got their knives out! See what happened to Caesar?” Scott said, referring to Caesar’s assassination on March 15 by the Roman Senate.
He warned the group that the Office of the Comptroller of the Currency wants to require that fintech companies—broadly defined as any entity involved in financial transactions—secure a charter, like a bank—specifically, a special purpose national bank charter. “So you’re under their oversight and their regulations,” Scott said.
“Your industry is at a very critical point,” he said. “Every financial services regulator in Washington … wants to look at you, examine you and determine how to regulate you.”
Right now, a fintech company can secure a state license to operate. But unlike a community bank, fintech companies frequently operate in multiple states, or exclusively online, so that leads to the potential headache of having to secure licenses in many states and comply with each state’s generally outmoded regulations governing financial transactions.
The antiquated and underdeveloped regulatory regime for the fast-changing fintech space was a major focus of the conference.
A more comprehensive regulatory regime will develop—and it’s better for Georgia fintech companies to have the state do it than the feds, said Scott and other participants.
Scott advised the audience to get ahead of the inevitable legislation by having input in how it takes shape, adding that he is working on federal legislation.
“We do not need to have your industry suffocated from federal regulations,” Scott said. “Use the legislative process to determine … how to define yourselves.”
“Lots of forces are trying to put Georgia on the map for fintech,” said King & Spalding counsel Ehren Halse, who moderated a panel on the evolving regulatory landscape.
“What’s not settled yet is who has responsibility for what and where the line between state and federal regulation is,” Halse said.
“States are a little more nimble,” he added.
Part of the problem is that regulations are evolving at a much slower rate than the fintech industry itself, which can be frustrating to companies that are trying to comply with regulations that were written for banks and other more traditional financial services entities—which they are not even sure apply to them.
Jeremie Beaudry, the head of legal, compliance and regulatory for Atlanta-based BitPay, a bitcoin payments processor for merchants, said states vary markedly in how loose or strict their cryptocurrency regulations are.
He said he’s had legislators tell him they “don’t understand bitcoin, so they’re going to regulate it”—adding that they’re operating under the misapprehension that it’s used to fund terrorists and drug deals. “My job is to educate them,” he said.
Georgia Banking Commissioner Kevin Hagler, another panelist for the regulatory session, is working on updating state regulations for fintech. He formed an emerging payments task force, with fintech companies participating, to come up with model regulatory language for the states to address what he called “marketplace lenders.”
“There is this patchwork quilt of regulations that does make it challenging for fintech companies to operate nationally,” Hagler noted.
Carla de Silva, product counsel for San Francisco-based Square Capital, said she gets thousands of pages of regulations from state and federal agencies and must pore through them to see which apply.
“And most are from the 1950s,” she added.
State regulators are easier to work with, de Silva said, when she’s trying to find out which regulations apply to her products and advocating for modernizations.
“At the federal level, it’s hard to know who to talk to,” she said, adding that federal regulators can take months to respond to inquiries while she has clients “who are trying to move fast and be agile.”
“If the rules for a product are unclear it’s hard to act quickly,” she said, adding that for state regulators, she has a better idea of who to call. States are also able to adopt legislation more quickly.
Dan Quan from the Consumer Financial Protection Bureau provided a federal perspective.
“We do move slowly,” said Quan, the senior adviser to the director for the CFPB’s Project Catalyst, which addresses fintech. “And we can’t give you legal guidance.”
He acknowledged that legal guidance is needed and said the agency is trying to catch up with fintech. “How can we make things move faster for people trying to do the right thing and trying new things?”
Just last week the CFPB issued its first “no action” letter to a Bay Area fintech startup, Quan said, “so they can keep operating in this space without fearing CFPB enforcement.”
Quan is also holding “office hours” at fintech hot spots around the country—most recently in Austin, Charlotte and San Francisco—to hear questions and concerns from industry participants and offer them more informal input.